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D.C. Healthcare Systems, Inc. v. District of Columbia

United States Court of Appeals, District of Columbia Circuit

May 28, 2019

D.C. Healthcare Systems, Inc., Appellant
v.
District of Columbia, a municipal corporation, et al., Appellees

          Argued November 16, 2018

          Appeal from the United States District Court for the District of Columbia (No. 1:16-cv-01644)

          Jared P. Marx argued the cause for appellant. With him on the briefs were Mark A. Grannis and Steven A. Fredley.

          Sonya L. Lebsack, Assistant Attorney General, Office of the Attorney General for the District of Columbia, argued the cause for appellees District of Columbia, et al. With her on the brief were Karl A. Racine, Attorney General, Loren L. AliKhan, Solicitor General, and Stacy L. Anderson, Acting Deputy Solicitor General.

          Laura Metcoff Klaus and Anna B. Laakmann were on the brief for appellees Amerihealth Caritas District of Columbia, Inc. and Amerihealth Caritas Health Plan.

          Clifford M. Sloan was on the brief for appellee Mercer, LLC.

          Before: Garland, Chief Judge, and Griffith and Pillard, Circuit Judges.

          OPINION

          GARLAND CHIEF JUDGE

         D.C. Chartered Health Plan was a health insurer that contracted with the District of Columbia to provide healthcare services for the District's low-income residents. In 2012, the D.C. Department of Insurance, Securities, and Banking found that Chartered was in financial distress and placed the company into rehabilitation, a statutorily prescribed receivership process in which the District's Insurance Commissioner is given broad authority, as the Rehabilitator, to take any action "deemed necessary or appropriate to reform and revitalize the insurer." D.C. Code § 31-1312(c). The Superior Court of the District of Columbia oversees the Rehabilitator and may approve a reorganization plan the Rehabilitator proposes as long as the plan is "fair and equitable to all parties concerned." Id. § 31-1312(e). Here, as part of the rehabilitation proceedings, the Superior Court approved the Rehabilitator's proposal to reorganize Chartered, to sell its assets to another health insurer, and to settle all of its claims against the District of Columbia and its current and former officials.

         Appellant D.C. Healthcare Systems, Inc., the sole shareholder of Chartered, actively participated in the rehabilitation, although it was not a formal party to the proceedings. After the Superior Court approved the reorganization plans, Healthcare Systems filed this federal lawsuit against the District and multiple other defendants, including the Rehabilitator, alleging that the defendants' unlawful and unconstitutional actions manufactured Chartered's financial distress and forced it into the rehabilitation proceedings.

         The district court dismissed Healthcare Systems' suit for lack of subject-matter jurisdiction. The ground the court cited for dismissal was the Rooker-Feldman doctrine, which bars "state-court losers" from seeking federal "district court review and rejection" of state-court judgments. Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005). We reverse because Rooker-Feldman is inapplicable to this case.

         I

         The District of Columbia provides healthcare coverage for eligible low-income adults, uninsured children, and residents with disabilities through privately owned insurance companies that serve as managed care organizations.[1] Chartered was one such organization that operated pursuant to a contract administered by the D.C. Department of Health Care Finance. Under that contract, from 1987 to 2013, Chartered paid for healthcare services for more than 100, 000 District residents. Those residents were enrolled in the federal Medicaid program or the D.C. HealthCare Alliance, a locally funded program that provides medical coverage for uninsured District residents who do not qualify for Medicaid. In return, Chartered was reimbursed at a per-member, per-month rate -- known as a "capitation rate." By law, the capitation rate must be set at "actuarially sound" levels, Am. Compl. ¶ 2, and must cover "(i) 100% of what Chartered was expected to pay providers plus (ii) a small percentage more . . . to cover Chartered's administrative costs, a premium tax assessment, and a small amount for profit," id. ¶ 34. See 42 C.F.R. §§ 438.4(a), 438.5(b) (defining "actuarially sound capitation rates" and establishing rate development standards). According to Healthcare Systems, the District began substantially underpaying Chartered in 2008. Am. Compl. ¶ 3.

         Following the 2010 enactment of the federal Affordable Care Act, which changed the eligibility standards for Medicaid, the District transferred approximately 23, 000 residents from the Alliance program to Medicaid. Id. ¶ 36. Healthcare Systems alleges that, because Medicaid beneficiaries are entitled to certain prescription-drug and other benefits not covered by Alliance, this transfer caused Chartered's costs to skyrocket. Id. ¶¶ 36-37. Despite Chartered's repeated requests that the District increase capitation rates to keep up with the rising cost of care, the District allegedly refused to adjust the rates. Id. ¶¶ 37-40.

         The D.C. Insurers Rehabilitation and Liquidation Act requires health insurers like Chartered to maintain certain capital levels. See D.C. Code § 31-3451.01. A "Mandatory Control Level Event" takes place when a health insurer's total adjusted capital is less than the required minimum. See id. § 31-3451.01(12). When such an event takes place, the Insurance Commissioner is statutorily required to "take such action as is necessary to place the health organization under regulatory control under . . . Chapter 13 of this title." Id. § 31.3451.06(a).

         Under Chapter 13, the Commissioner may petition the D.C. Superior Court for an order authorizing him or her to rehabilitate an insurer that "is in such a condition that the further transaction of business would be hazardous financially to its policyholders, creditors, or the public." Id. § 31-1310(1). A rehabilitation order appoints the Insurance Commissioner as the Rehabilitator and directs him or her "to take possession of the assets of the insurer, and to administer them under the general supervision of the court." Id. § 31-1311(a). "If the rehabilitator determines that reorganization, consolidation, conversion, reinsurance, merger, or other transformation of the insurer is appropriate, the rehabilitator shall prepare a plan to effect the changes." Id. § 31-1312(e). The Superior Court may approve the Rehabilitator's proposed plan as long as it is "fair and equitable to all parties concerned." Id.

         In April 2012, then-Insurance Commissioner William White informed Chartered's president that its 2011 financial statement reflected a level of "risk-based capital" that was "significantly below" the minimum required under D.C. law. Am. Compl. ¶ 47. White then retained Daniel Watkins as a consultant to conduct a financial review of Chartered. In October 2012, White, Watkins, and Department of Health Care Finance Director Wayne Turnage began working to obtain consent from Chartered's board of directors and its sole shareholder --appellant Healthcare Systems -- to place Chartered into rehabilitation proceedings. On October 18, Healthcare Systems gave its written consent.

         The next day, Commissioner White filed an emergency consent petition in the Superior Court, seeking to place Chartered into rehabilitation. A Superior Court judge issued an Emergency Consent Order of Rehabilitation, which appointed White as Rehabilitator. White then appointed Watkins as Special Deputy Rehabilitator.

         In February 2013, Watkins asked the Superior Court to approve a proposed Plan of Reorganization for Chartered, as well as a proposed Asset Purchase Agreement, under which Chartered's assets would be sold to AmeriHealth, another managed care organization operating in the ...


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